FINANCIAL INFORMATION PRIVACY

(Current as of March 2003)

THE ISSUE IS: Should privacy protection standards that exist for financial services institutions who divulge consumers' and customers' "nonpublic personal information" be uniform across the United States, and does the current standard adequately protect consumer privacy as well as the consumer's right to make individual decisions?

IT’S IMPORTANT BECAUSE: Financial information privacy remains a controversial and politically significant issue. The continued attention on privacy is leading to increasingly restrictive and inconsistent laws that will ultimately limit consumer choices and benefits.

Insurers and consumers have been through two privacy notice cycles as required by the Gramm Leach Bliley Act (GLBA), and the customer opt-out rate remains in single digits. Self-appointed consumer advocates claim that the "low" opt-out rate is proof that privacy notices are confusing, and that opt-out is an inadequate standard. While some believed that the privacy debate ended with the passage and implementation of the GLBA, it is now clear that the GLBA was only the starting line. Consider that:

New Mexico and Vermont have implemented opt-in privacy regulations, and Alaska is considering an opt-in regulation. Because opt-in is more restrictive than the GLBA's opt-out standard, its implementation in a few states creates a patchwork of varying rules, complicating compliance for multi-state insurers. The resulting web of inconsistent state laws will severely complicate compliance, making it an uncertain process. Multi-state insurers will be forced to adopt the most restrictive state requirements, denying consumers in less restrictive states the benefits derived from information sharing.
Extensive legislative action increasing privacy restrictions is anticipated in California this spring. Some of this activity will be on the municipal level, severely complicating compliance efforts within a single state.
Self-styled consumer advocacy groups continue to argue to Congress and the National Association of Insurance Commissioners (NAIC) that the complex wording in privacy notices is the cause of the "low" opt-out rate, and they flatly reject the notion that people are making intelligent choices. NAMIC and other industry representatives have argued that there is no evidence supporting the notion that consumers are not making intelligent choices. While privacy notices may be difficult to read, they must track GLBA's statutory language; and there is no simple substitute for GLBA phrases like "non-public personal information". Yet, failure to use these "magic words" will subject insurers to litigation. The NAIC formed a working group tasked with writing a simplified model privacy notice that meets the GLBA's legal requirements. Despite significant efforts, the working group has been unable to accomplish this task, and the effort continues.
The federal Fair Credit Reporting Act (FCRA) is due for reauthorization in 2003. It is believed that "privacy advocates" will see this as an opportunity to expand federal restrictions in the name of privacy.

NAMIC believes that the current opt-out rate is due to many, varying, and intelligent consumer decisions. The following factors support this position:

Individual concerns about privacy play into a series of factors leading to decisions about exposing or protecting personal information. People make decisions about their privacy after balancing risks with benefits. In comments filed on January 25, 2002, with the Washington State Attorney General, NAMIC argued that "…over 2/3 of internet users believe that their privacy is compromised by use of the internet. … you cite a recent Gallup Poll indicating that 53% of those who use the internet are "very concerned" about the security surrounding their personal information. Yet, they continue to use the internet and …it continues to grow at an extraordinary rate." Clearly, people have overwhelmingly chosen the benefits of shopping on line despite their privacy concerns proving that privacy is but one in a series of factors considered by consumers in making individual decisions.
Credible survey results prove that privacy is not an overwhelming concern. When people are asked if privacy is a major concern, they do respond affirmatively in large numbers. However, when the survey answers are not suggested, privacy does not make the list. See: With a Grain of Salt, What Consumer Privacy Surveys Don't Tell Us, The Competitive Enterprise Institute, by Jim Harper and Solveig Singleton, June 2001.
Consumers are a diverse group who make decisions for many diverse reasons. One line of argument addresses the varying reasons that motivate people to purchase caller ID. One person's motivation may be to avoid a stalker; someone else may just want to avoid telemarketers. See: Measuring the True Cost of Privacy: A Rebuttal to "Privacy, Consumers, and Cost", The Information Policy Institute, www.the-ipi.org, by Michael A Turner.

The issue of consumer privacy is highly complex and has been over-simplified by some who advocate standards that are more restrictive. The truth is that people make varying decisions about their privacy for a multiplicity of reasons. Consequently, addressing privacy concerns in a way that respects an individual's right to make choices does not lend itself to simple or repressive solutions. The opt-out standard strikes a balance by protecting nonpublic personal information without denying others the benefits of information sharing.

NAMIC POSITION: NAMIC supports the privacy provisions contained in the GLBA. It is essential for consumers to know for what purposes their information will be used. Combined with existing financial privacy law, the GLBA provisions provide consumers with strong and effective privacy protections. Privacy is an extremely complicated issue, and additional restrictions should not be adopted without an extensive analysis of their potential ramifications such as an inability to conduct legitimate business transactions and to detect and prevent fraud.

NAMIC believes that consumer choices must be respected. Consumers deserve to know that the "nonpublic personal information" they submit to a financial institution, including an insurance company, will not be used in an inappropriate manner. Accomplishing this in a way that respects a consumer's right to make an intelligent and free choice requires a delicate balance that cannot be attained by restrictive or simplistic laws.

Therefore, NAMIC will continue to advocate for the following:

The primacy of the opt-out standard throughout all insurance jurisdictions. This standard respects consumer choice about the use of nonpublic personal information without imposing an overly restrictive regulatory scheme that makes such choice less likely.
More readable privacy notices, if legally adequate language can be developed for GLBA required phrases like "nonpublic personal information."

Posted: Wednesday, February 12, 2003 12:00:00 AM. Modified: Wednesday, August 10, 2005 2:48:58 PM.

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We are 1,400 property/casualty insurance companies serving more than 135 million auto, home and business policyholders, with more than $196 billion in premiums accounting for 50 percent of the automobile/homeowners market and 31 percent of the business insurance market. We are the largest and most diverse property/casualty trade association in the country, with regional and local mutual insurance companies on main streets across America joining many of the country’s largest national insurers who also call NAMIC their home. More than 200,000 people are employed by NAMIC members.